Retirement Planning-Business Exit Strategies-Part 1
READERS’ ALERT-LECTURE EVENT. We’ve already announced a lecture (via the internet) featuring Allan Gold, (one of family law lawyers Montreal / business lawyer Montreal) dealing with a number of legal topics relevant to Canadians, running a business during the Covid 19 economic crisis. Please refer to the outline already published at Checklist #3 in Mr. Gold’s Blog uploaded on July 13, 2020. The subject lecture is now tentatively scheduled after Labour Day in the first weeks of September 2020. The precise date and time will be announced on August 31, 2020.
RETIREMENT PLANNING FOR FAMILY BUSINESS OWNERS: Some lessons to be learnt about business exit strategies from the Frank & Belinda Stronac Group Saga!*
- OPENING
Deadline Toronto August 13, 2020 – The news was that Frank Stronac and Belinda Stronac had settled and the fight over The Stronac Group had ended. The settlement appears to be a split between the two sides in the family. Belinda Stronach will remain chairwoman and president of The Stronach Group and she will have full control of its horse racing, gaming, real estate and related assets. On the other hand, Frank and his wife, Elfriede Stronach will assume full ownership and control of a stallion and breeding business, all farm operations in North America and all European assets. This must be good news for the parties. But there’s something here that’s important for all of us to take note.
- Frank & Belinda Stronac Group Saga
B.1 Background Facts. For your information, Frank Stronac and Belinda Stronac have been battling it out in court with serious claims and counter claims and there were big dollars involved. Yes, this was quite a fight. Frank Stronach is a self- made man and the family fortune originates in part from his work at Magna International, an international automotive parts company based in Aurora, Ontario, Canada. Magna is “…one of the largest companies in Canada and was recognized on the 2019 Forbes Global 2000….It produces automotive systems, assemblies, modules, and components,[4] which are supplied to General Motors, Ford Motor Company and FCA,[5] as well as BMW, Mercedes, Volkswagen and Tesla Motors, among others.”:.(Source: https://en.wikipedia.org/wiki/Magna_International). Belinda Stronac, aged 54 is the daughter of Frank Stronac and the Chairman & President of The Stronach Group. It does business as 1/ST – it’s an entertainment and real estate company in North America with thoroughbred horse racing and pari-mutuel wagering at the core. Frank Stronach was also a founder of The Stronach Group.
B.2 Case. In September 2018, an action seeking $500 million was brought before the Ontario Superior Court by Frank Stronach etc. The Defendants were his daughter, two grandchildren and former business associate, Alon Ossip. As per reports in the news, Plaintiff alleged that they mismanaged the family’s assets and conspired to take control of them. The heart of his position was his assertion that he was a father trusting his relatives. According to him, he gave up control of family trusts in 2013, but it was with the understanding that he was still in de facto control and could retake his position whenever he wanted to do so. He alleged repeated breaches of trust. He said that “corporate documents were falsified as part of a scheme…to limit or eliminate Frank’s role in running the Stronach family business…” Apparently, there was a breakdown in the relationship between his daughter and family members. On the other hand, in her statement of defence, Belinda Stronach alleged that her father had lost vast sums of money on pet projects and she had to intervene to stem losses from millions of dollars being spent on a cattle ranch, golf course and other endeavors. She also countersued her father in January 2019, claiming that she was owed $33 million from funds, which she had given him. She also asserted that there were serious cost overruns. She pointed to a horse-racing course, whose initial cost was estimated at US$6 million, but which had ballooned to US$55 million. In his statement of defence, Alon Ossip, a former business associate said, “His refusal to let go of his failing business ventures has become financially disastrous.” “Frank was, in his day, a giant of Canadian business…today, at 86 years of age, Frank’s business judgment is not at all what it once was.”
B.3 Comment.This case shines a bright light on the problems surrounding the making of a business exit strategy, such to transition a family business unto the next generation. It illustrates the difficulty of getting it right and it shows how it can go terribly wrong. More precisely, I extrapolate several things from the foregoing fact pattern, which I believe are important to all founder/owner –operators of a family business, notably.
- That a parent typically has trust at the outset for those he/she puts in charge of the family business (trusts);
- That although having departed, a founder/owner –operator might understand that he/she is still in de facto control and is able to retake his/her position should that be his/her wish to do so.
- That afterwards, if and when the parent wants to do things his/her way, there may be push back from the adult child or children left in charge and the founder/owner –operator might have to resort to legal action, to recover his/her property.
- That the means of resolution could require a payout and/or it might involve the partition of the business/assets.
― Best wishes to each of you and to your entire family.*
Allan J. Gold
Avocat/Barrister & Solicitor
NO 1 Wood Avenue Condominium
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www.allanjgold.com ; Blog: https://allanjgold.com/blog-glm/
D. PREVIEW OF NEXT IN THE BUSINESS LAW BLOG SERIES.
I believe that with this blog series, I may have started you along the way to being more aware of the law for business, I have started a series on retirement planning. This time I’m addressing the topic of BUSINESS EXIT STRATEGIES. And I have considered the case of Frank Stronach and The Stronach Group. Indeed, it shines a bright light on the problems surrounding the making of a business exit strategy, transitioning a family business to the next generation. Interested? Want to get more information about the current topic, retirement planning or other areas of law. Next time I will continue on with my analysis providing my take on this case. I shall also enumerate my Top-10 ‘Golden’ Rules regarding Family Business Exit Strategies, such in the form of Dos & Don’ts. Interested? Want to get more information about the current topic, retirement planning or other areas of law written by an “avocat,” one of the family business law lawyers, a business lawyer Montreal, practicing also in the elder law field? See you next time. It won’t take too much time. Remember my byline – it’s “Gold’s Legal Minute*GLM*!” And please don’t forget to join my professional community by entering your e-mail at the prompt.*
E. NOTICE – CAUTION –DISCLAIMER.
The material provided herein is of a general nature, strictly for informational purposes. The interpretation and analysis is not to be misapplied to a personal situation with a particular set of facts. Under no circumstances, are the herein suggestions and tips, intended to bring a reader to the point of acting or not acting, but instead, the hope is that they are to be a cause for pause and reflection. It is specifically declared that this content is not to be a replacement of, or a substitution for, legal or any other appropriate advice. To the contrary, for more information on these presents, related subjects or any other questions, it is the express recommendation of the author that everyone seek out and consult a qualified professional or competent adviser.
*©/TM 2020, 2019, 2015-2018, Allan Gold, Practitioners’ Press Inc. – ALL RIGHTS RESERVED
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